Google Said to Rethink Wallet Strategy Amid Slow Adoption

The Google Inc. Mobile Wallet application for cardless payment is displayed on a smartphone screen at the Mobile World Congress in Barcelona, Spain, on Feb. 29, 2012. Photographer: Chris Ratcliffe/Bloomberg

March 21 (Bloomberg) -- Google Inc. is weighing changes
aimed at improving its Google Wallet mobile-payment system
following slow adoption and the departure of two key managers,
according to people with knowledge of the project.

The company is considering sharing revenue with carriers
such as Verizon Wireless and AT&T Inc. to get them to embrace
the technology, which lets users pay for items at checkout by
tapping phones on a reader device, said the people, who asked
not to be named because the discussions are private.

Google aims to spur demand for its Wallet app, which is
designed to boost its share of the multibillion-dollar market
for mobile advertising by letting it target shoppers with
coupons and promotions. The challenge: Few phones have the right
technology installed, and rivals are readying their own systems,
including one called ISIS that’s backed by carriers.

“They are in a bit of a re-evaluation pattern right now,”
said Rick Oglesby, an analyst at Boston-based research firm Aite
Group. “It’s going much slower than anticipated.”

One of the two original creators of the Google Wallet
software, Jonathan Wall, left Google this month to start his own
company focused on mobile shopping, Tappmo Inc. Marc Freed-Finnegan, lead product manager for Google Wallet, also departed
to join Tappmo.

Making Progress

Google said it’s enthusiastic about Google Wallet’s
progress so far. The company is enlisting retailers such as the
Pinkberry frozen-yogurt chain, which announced this week that it
is using the system. Google Wallet relies on a system called
near field communications, a wireless standard that works from
within a few inches.

“We continue to work hard to develop Google Wallet and
build the partner ecosystem to make it possible for everyone to
pay with their phones and get great deals while shopping,” Nate
Tyler, a spokesman for Mountain View, California-based Google,
said in an e-mailed statement.

The mobile-payment market has drawn scads of competitors,
including startups and more established companies such as Visa
Inc., all aiming to capitalize on the growth of smartphones. The
idea is to free shoppers from having to carry credit cards or
cash -- they just need their handsets. Mobile-payment
transactions will top $170 billion by 2015, up from about $60
billion last year, according to Juniper Research.

ISIS System

As the owner of both the world’s most popular search engine
and smartphone operating system, Google has an inside track with
consumers. Still, it lacks the support of the two biggest U.S.
carriers, Verizon and AT&T, which are backing the ISIS system.
For now, Google Wallet’s NFC functions only work on two phones
from Sprint Nextel Corp., the third-largest U.S. carrier. While
50,000 to 100,000 people have downloaded the software, only a
small percentage use it, Oglesby estimates.

“The reception has been lukewarm,” said Chetan Sharma, an
independent consultant focused on the wireless industry.

Gaining a bigger foothold in the wireless-payment market
would help solidify Google’s role as the leading seller of ads
on phones and other mobile devices. That industry is projected
to reach almost $11 billion in 2016, up from $2.61 billion this
year, according to research firm EMarketer Inc.

The proposal to share revenue with carriers would involve
the coupons and special offers that run on the Google Wallet
app, the people familiar with the matter said. Carriers might
get a cut of the proceeds when consumers accept the deals.

‘No Incentive’

“Today, the operators have no incentive to adopt Google
Wallet, given that they have their own ambitions in this
space,” said Sharma, who is based in Issaquah, Washington.

Verizon, AT&T and T-Mobile USA have joined forces to create
ISIS, which is slated to roll out in the next few months. At the
same time, carriers aren’t making it easy for their customers to
use Google Wallet. In December, Verizon blocked the app from its
new Galaxy Nexus smartphone, citing security concerns.

“We are continuing our commercial discussions with Google
on this issue,” Brenda Raney, a Verizon spokeswoman, said in an
e-mail. Mark Siegel, an AT&T spokesman, declined to comment on
whether the carrier might offer the app in the future.

Another option Google is exploring: sidestepping the
carriers altogether and relying more heavily on in-store
terminals to complete mobile-payment transactions, the people
said. This approach could involve additional hardware or
software for the terminals, coupled with software that runs on
Google’s servers, they said.

Work Around

So instead of requiring phones to authenticate payments --
something that needs assistance from carriers -- the system
might send transactions to Google’s servers for approval and
then clear it with the retailer.

Google currently works with VeriFone Systems Inc., Ingenico
and ViVOtech Inc., which make hardware and software for cash
registers and other payment systems. Other Google Wallet
partners include retailers such as Macy’s Inc., Subway
Restaurants and American Eagle Outfitters Inc.

Google is adding more employees to the effort, seeking to
fill eight Google Wallet positions. Last November, the company
folded its Checkout service, which lets customers make online
purchases, into Google Wallet.

Sprint will introduce as many as 12 new phones able to run
the Wallet app this year. Even so, Google’s retail partners
aren’t seeing much traffic for now.

“We knew from the get-go we won’t see a lot of volume,”
said Robert Notte, chief technology officer at Jamba Juice,
which accepts Google Wallet NFC payments at 276 stores. “We are
in very early stages of this.”